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Labor markets and institutions

Institutions have important consequences for the performance of households, companies, governments, and entire markets—they determine the welfare of nations. Contributions to this subject area explore the underlying mechanisms and the politico-economic determinants of such structures. Many provide background analyses that offer evidence on how new institutions and policies would affect labor markets.

Family firms offer higher job security but lower wages
than other firms

Family firms are ubiquitous in most countries. The
differences in objectives, governance, and management styles between those firms and
their non-family counterparts have several implications for the workforce, which
scholars have only recently started to investigate. Family firms offer greater job
security, employ different management practices, have a comparative advantage to avoid
conflicts when employment relations are more hostile, and provide insurance to workers
through implicit contracts when labor market regulation is limited. But all this also
comes at a cost.

Work hours have been falling in developed
countries—But where will they go in the future?

Working hours across the world are falling, but
considerable variation remains. In some countries people work 70% more hours
per year, on average, than in other countries. Much of this variation is due
to differences in the prevalence of part-time work and patterns of female
labor market participation. Looking ahead, the question of how reducing
working hours will affect productivity is significant. In addition, how
individuals divide up their leisure and work time and what the appropriate
work−life balance is in an increasingly technological future are important
concerns.

Over the last 50 years women have been
increasing their participation in the labor market and in the crime
market

In recent decades, women’s participation in the
labor market has increased considerably in most countries and is converging
toward the participation rate of men. Though on a lesser scale, a similar
movement toward gender convergence seems to be occurring in the criminal
world, though many more men than women still engage in criminal activity.
Technological progress and social norms have freed women from the home,
increasing their participation in both the labor market and the crime
market. With crime no longer just men’s business, it is important to
investigate female criminal behavior to determine whether the policy
prescriptions to reduce crime should differ for women.

Young people experience worse labor market
outcomes than adults worldwide but the difference varies greatly
internationally

In Germany, young people are no worse off than
adults in the labor market, while in southern and eastern European
countries, they fare three to four times worse. In Anglo-Saxon countries,
both youth and adults fare better than elsewhere, but their unemployment
rates fluctuate more over the business cycle. The arrangements developed in
each country to help young people gain work experience explain the striking
differences in their outcomes. A better understanding of what drives these
differences in labor market performance of young workers is essential for
policies to be effective

Jobs can change quickly from full- to part-time
status, especially during economic downturns

The share of workers employed part-time
increases substantially in economic downturns. How should this phenomenon be
interpreted? One hypothesis is that part-time jobs are more prevalent in
sectors that are less sensitive to the business cycle, so that recessionary
changes in the sectoral composition of employment explain the increase in
part-time employment. The evidence shows, however, that this hypothesis only
accounts for a small part of the story. Instead, the growth of part-time
work operates mainly through reductions in working hours in existing
jobs.

Workers can benefit from technology that
substitutes robots or other machines for their work by owning part of the
capital that replaces them

Robots, that is any sort of machinery from
computers to artificial intelligence programs that provides a good
substitute for work currently performed by humans, can increasingly replace
workers, even highly skilled professionals, and thus reduce opportunities
for good jobs and pay. But, with appropriate policies, the higher
productivity due to robots can improve worker well-being by raising incomes
and creating greater leisure for workers. Consider the way Google reduces
the need for reference librarians and research assistants, or the way
massive open online courses reduce the need for professors and lecturers.
How these new technologies affect worker well-being and inequality depends
on who owns them.

There is no evidence that increases in the
minimum wage have hurt immigrants

According to economic theory, a minimum wage
reduces the number of low-wage jobs and increases the number of available
workers, allowing greater hiring selectivity. More competition for a smaller
number of low-wage jobs will disadvantage immigrants if employers perceive
them as less skilled than native-born workers—and vice versa. Studies
indicate that a higher minimum wage does not hurt immigrants, but there is
no consensus on whether immigrants benefit at the expense of natives.
Studies also reach disparate conclusions on whether higher minimum wages
attract or repel immigrants.

Job satisfaction is important to well-being, but
intervention may be needed only if markets are impeded from improving job
quality

Many measures of job satisfaction have been
trending downward. Because jobs are a key part of most people’s lives,
knowing what makes a good job (job quality) is vital to knowing how well
society is doing. Integral to worker well-being, job quality also affects
the labor market through related decisions on whether to work, whether to
quit, and how much effort to put into a job. Empirical work on what
constitutes a good job finds that workers value more than wages; they also
value job security and interest in their work. Policy to affect job quality
requires information on the cost of the different aspects of job quality and
how much workers value them.

Grants and training programs are great complements to
social assistance to help people out of poverty

Productive inclusion programs provide an integrated
package of services, such as grants and training, to promote self-employment and wage
employment among the poor. They show promising long-term impacts, and are often proposed
as a way to graduate the poor out of social assistance. Nevertheless, neither productive
inclusion nor social assistance will be able to solve the broader poverty challenge
independently. Rather, the future is in integrating productive inclusion into the
existing social assistance system, though this poses several design, coordination, and
implementation challenges.

Does the transition to market economies imply
growing wage inequality and, if so, along what dimensions?

Examining the implications of changes in public
sector wage-setting arrangements due to privatization is a relatively new
area of economics research, with few studies having analyzed the effects of
public sector restructuring on relative wages in developed countries. There
is, however, a growing empirical literature that measures the effects of
transitioning from central planning to market-based systems on
public–private sector wage differentials. Policymakers can learn from this
evidence about the ways in which ownership transformation affects the
distribution of wages in both the public and private employment sectors.